Standing Committee B

[Mr. Jonathan Sayeed in the Chair]

Energy Bill [Lords]

Schedules 20 and 21 agreed to.

Clause 157 - Restrictions on winding-up orders

Question proposed, That the clause stand part of the Bill.

Anne McIntosh: Good morning, Mr. Sayeed, and welcome back to the Chair. I rise to ask the Minister for a couple of points of clarification. Will the proceedings for winding-up orders be the same in Scotland as they are in England? What will the position be for creditors of electricity companies?

Nigel Griffiths: A warm welcome back to the Committee, Mr. Sayeed. The hon. Lady asked two questions about this block of five clauses—157 to 161. The aim is to prevent special administration from being frustrated by prior orders of various types being granted before the Secretary of State and Ofgem have been given an opportunity to seek an energy administration order, or by other steps being taken when an energy administration order has been made or an application is outstanding.
 Proceedings in Scotland will be in accordance with Scottish rules and practice. Those are designed, I understand, to parallel proceedings in England, Wales and Northern Ireland. If that requires further clarification I am happy to write to members of the Committee, but I hope that explanation will suffice. Will the hon. Lady remind me of her second point?

Anne McIntosh: My second point relates to creditors of a company that had to be wound up. Would they be treated the same in England as in Scotland?

Nigel Griffiths: The rules governing creditors when administrators, or their equivalent, go into a company will not be different from the existing rules applying to any company going into administration. I will need to get more clarification, but my understanding is that the position of creditors in these circumstances will be no different from that of those in other circumstances.

Anne McIntosh: Perhaps it would assist the Minister if I gave more clarification. We heard from the Liberal Democrats what the position of particular companies would be if they were granted special status under the Gas and Electricity Markets Authority and what the position of creditors would be. The regulatory impact
 assessment includes special arrangements for administration and I assume that they apply to this clause. I seek clarification of whether the situation will be the same as an ordinary sequestration.

Nigel Griffiths: I think the aim is to prevent a winding-up order from being sought by a person other than the Secretary of State to frustrate or interfere with a process, unless, as the Bill states, notice has been served on the Secretary of State and 14 days have passed since the last of the notices were served. The clause is designed so that, if an application for an energy administration order is received before a winding-up order is made, the court can consider that application instead of making winding-up orders.
 The position of creditors in special administration is similar to that in normal administration, but there are differences for special administration, which are outlined and have the benefit of case or the appropriate law. The attempt here is not to add to the legal powers in a novel way, but to reflect what appertains to special administration as well as to administration, so that there are set procedures for how creditors will be dealt with. The primary purpose of special administration in this case is to keep the lights on. Creditors' rights should not otherwise be affected. I hope that I have satisfied hon. Members on that issue. 
 Question put and agreed to. 
 Clause 157 ordered to stand part of the Bill. 
 Clauses 158 and 159 ordered to stand part of the Bill.

Clause 160 - Restrictions on administrator appointments by creditors etc.

Question proposed, That the clause stand part of the Bill.

Anne McIntosh: I seek an assurance from the Minister that the Government—the state—will not be asked to act as a creditor in respect of administration under the clause.

Nigel Griffiths: My understanding is that the Government will not be asked to stand creditor. I hope that the hon. Lady is satisfied with that reassurance.

Anne McIntosh: I am slightly concerned because the Minister says that the purpose of these clauses, particularly clause 160, is to keep the lights on. In that case, someone will have to make good the outstanding debts if the Government will not stand creditor in that regard.

Nigel Griffiths: We are talking about companies. The positions of a creditor, particularly a secured creditor, and the directors of a company are set out clearly and have been for a number of years. There are responsibilities. An administrator will be responsible for ensuring that the company continues to run and that the lights are kept on, but they will deal with the
 liabilities of the current or former directors and others, such as the shareholders of the company, as well. I am advising the hon. Lady that the liabilities or the costs of keeping the system going, which I am advised clauses 162 to 165 deal with, allow for a charge to be raised on the licence holders. That is explained in clause 162.

Anne McIntosh: I understand that it is unlikely that such companies would become insolvent because according to pages 91 and 92 of the regulatory impact assessment they are effectively monopolies or duopolies. My concern is that were such a company to become insolvent another company might not be able to leap into the breach. That is a particular worry in Scotland, which has only two such companies, and we heard earlier that there might be a move to merge them. The Government must have thought this through because it could wreck the whole Bill. What measures do they intend to take to keep the lights on?

Nigel Griffiths: Clauses 162 to 165 give clear powers here. There is provision for the Government to provide grants, loans and loan guarantees—short-term funding mechanisms for companies to keep the network functioning.

Anne McIntosh: What assurance does the Committee have that those grants and loans would pass the stringent conditions of the EU state aid provisions? On similar occasions, short of insolvency, such grants and loans have been deemed to breach EU treaty rules and the competition provisions. The measures set out in the Bill would therefore mean absolutely nothing.

Nigel Griffiths: The hon. Lady slipped in the critical phrase ''short of insolvency''. Previous state aid cases tended to focus on whether investment would be permitted and money raised. Obviously, such a matter would be considered by the Commission. The Government could undoubtedly persuade the Commission that in such circumstances the prime necessity would be to keep the lights burning, the heating systems working and the fuel flowing. I believe that the Commission would view matters in that light. It would not want to be held responsible for blocking any loan or grant that might be needed in the extreme case that the hon. Lady rightly describes. The clauses provide for extreme emergencies. I do not envisage the Commission doing anything to shut off the lights or fuel in Britain.

Anne McIntosh: I have made the point and the record will speak for itself. A similar situation pertains with British Energy, which is not a private company like the electricity companies. I understand that the Commission was not minded to allow some of the moneys that the Government wished to give British
 Energy and would look cautiously at such requests. I also understand that the time scales relating to clause 160 are extremely tight.
 Question put and agreed to. 
 Clause 160 ordered to stand part of the Bill. 
 Clauses 161 to 163 ordered to stand part of the Bill.

Clause 164 - Guarantees where energy administration order is made

Question proposed, That the clause stand part of the Bill.

Laurence Robertson: What I want to say follows on from the questions put by my hon. Friend the Member for Vale of York (Miss McIntosh). This strange clause states that the Secretary of State may guarantee various sums that are borrowed by the company when the energy administration order is in force. It seems odd that even after the Government have effectively taken over the company, it can continue to borrow sums, which the Government can guarantee. What is the position under European law in that respect? Will the Minister please clarify the effect of the clause?

Nigel Griffiths: The hon. Gentleman has summarised the aims of the clause. The Government expect that the energy administrator will, as a first recourse, look to commercial lenders to provide funding—short-term financing—to meet the objective of energy administration, which is to keep the network running despite the insolvency, or near insolvency, of the company. The clause will allow Secretary of State to guarantee sums borrowed by the protected energy company and provides for the payment of interest on those sums, as well as the discharge of related financial obligations for which she may see fit to accept the terms of the guarantee. That is to ensure that the energy administrator can look to commercial lenders.
 The hon. Gentleman raises a fair point—state aid will need to be considered fully at the time—but the Government believe that it is fully approvable by the European Commission in accordance with the guidelines on state aid for rescuing and restructuring firms in difficulty. If the guarantee constituted state aid, we would, in the usual way, notify and obtain approval from the Commission, which would consider the arrangement in the circumstances of the specific case. We would expect the energy administrator to put a powerful case in such circumstances.

Laurence Robertson: I accept the good intentions of the clause, but the timing is difficult in the sense that the ruling on British Energy has not yet been made. However, if the ruling went against the Government's intentions in respect of British Energy, would that mean, by implication, that the clause is worthless? Is that really the position?

Nigel Griffiths: No. British Energy is a specific case. The Commission considers these issues case by case and it would be wrong to compare a position taken in the past, or a pending position in a case, and say how it might affect the hypothetical cases that we are dealing with now. British Energy is an unrelated issue. The clause gives us a provision that will require approval from the Commission if the guarantee constitutes state aid, and the Commission will consider that with regard to the circumstances of the specific case.

Laurence Robertson: I am still not entirely clear what the difference between British Energy and these companies would be, and I am not entirely satisfied that the Minister has explained the difference, although it is an analogy at this stage. I cannot see why the European Commission would view each company differently. Surely the Government or the courts would grant an energy administration order if a company could not run itself financially. I do not see the difference between company A not being able to run itself financially and company B not being able to run itself financially; it seems to provide much the same reason for taking that company over. I wonder whether these clauses are compatible with European law, and it seems that the Government are saying that they do not know either. Are we not are in a bit of a mess?

Nigel Griffiths: Not really. British Energy operates in a competitive market in which a special administration regime is for regulated natural monopolies, so the nature of the aid to British Energy, as in the case that the hon. Gentleman envisages, is different. The circumstances of the company are different. That is why there is a difference.

Andrew Stunell: On reading these clauses, I was under the impression that they applied also to regulated companies in the energy sector. Like the hon. Member for Tewkesbury (Mr. Robertson), I am mystified by the distinction that the Minister is drawing. He might want to reconsider that distinction, and perhaps write to members of the Committee separately. This is quite a technical issue, so perhaps he could take advice before informing the Committee further.

Nigel Griffiths: If, on viewing Hansard, there appear to be issues that require clarification, I undertake to write to the Committee.
 Question put and agreed to. 
 Clause 164 ordered to stand part of the Bill. 
 Clause 165 ordered to stand part of the Bill.

Clause 166 - Licence conditions to secure funding of energy administration

Question proposed, That the clause stand part of the Bill.

Anne McIntosh: May I invite the Minister to comment on his Government's response to the consultation document, ''Proposals for a special administration regime for energy network companies'', which contained Government conclusions from the replies to the DTI consultation document of 16 April 2003? To support my remarks, I draw from pages 68 and 69 of the excellent Library notes prepared on the Bill, which refer especially to the procedures that would be used to secure funding of energy administration, which is the subject of clause 166. The notes say that the Government response
''indicated that all but one respondent to that consultation''— 
which closed just over a year ago on 20 June 2003— 
''broadly welcomed the introduction of a special administration regime . . . Most respondents believed that legislation to introduce special administration was proportionate to the risks of the networks ceasing to operate as a result of normal insolvency procedures and would ensure that consumers would continue to receive supplies of energy in the unlikely event of a network company becoming insolvent. The preferred scheme should be along the lines of the schemes already in place for the water and railway sectors.'' 
I have some knowledge of the Railways and Transport Safety Bill as I had the honour to serve on the Standing Committee. We had a similar debate, not so much about how the funding would be raised, but about what would happen and what the role of the regulator would be in the event of one of the companies that had been awarded a franchise under the Bill becoming insolvent. I am disappointed that this part of the Bill is silent about the role of the regulator. Was it the specific intention of the Minister and his Department not to elaborate on that? 
 I shall quote the Government's response about favouring an ex ante scheme. On the question of funding for special administration, the response states that the 
''costs of special administration would be borne in the first instance by creditors and members, but that provisions will be made for any excess funding required to keep the network running. The Government considers that this funding should come from the industry and therefore ultimately from consumers, as the beneficiaries, rather than taxpayers but that provision for an interim Government loan or loan guarantee will be necessary in the absence of an ex-ante fund.'' 
In the light of my earlier probing questions to the Minister, that response establishes on the record—although it is not included in the explanatory notes or the Bill—that the Government intend to secure funding for administration.

Nigel Griffiths: What that response does is to give provision for the Government to secure funding; it does not state an intention.

Anne McIntosh: Well, it establishes the legal basis for the Government to act. Given the huge investments that companies are being asked to make to carry out their responsibilities as utility companies, what authorisation does the Minister's Department have under clause 166? Has funding been allocated as a specific budget line or is it part of a reserve allocated to the Department?
 The Library note clearly states: 
 ''Energy administration may be ended either by rescue of the company as a going concern, or by means of transfer, as set out in the Bill. This may be to one company or by separation into several going concerns. The Bill also makes provision for the Secretary of State, with the permission of the Treasury''— 
this appears in the Library note, not the Bill or the explanatory notes; the Committee ought to know the precise fiscal implications of clause 166— 
''to give a grant or loan, or loan guarantees to a company in energy administration where this will help achieve the objectives of administration. In the latter case, a statement must be made to Parliament as soon as practicable after the guarantee is made, and annually thereafter until the liability is discharged.'' 
It would be immensely helpful, therefore, if the Minister would set out what the specific procedure is, why it is not included in the Bill, and what budgetary allocation the Treasury has made. 
 I return to the remarks made by my hon. Friend the Member for Tewkesbury, in response to which the Minister tried to differentiate the situation with British Energy. He is in a minority of one. The Library note clearly draws a parallel with the 
''financial difficulties experienced by the nuclear generator British Energy in 2002'', 
in which 
''company restructuring was attempted with the aim of its becoming solvent. The Government prepared contingency plans to ensure nuclear safety and security of supply''. 
There is a direct parallel and I cannot understand why the Minister does not see it. Why can he not be up front with the Committee? We are representatives for the public and we need to know the fiscal implications and the procedure. It would be immensely helpful if the Minister spelled that out and explained why it is not in the Bill.

Nigel Griffiths: I shall answer the hon. Lady's questions in order. The regulator would be expected to act in the same way towards a company in energy administration as towards other companies. I understand that that has been set out in case law with Winsor v. Bloom. The regulator must take account of the ability of the licence company to fund its activities. Clause 166 is about how a shortfall in funds after special administrations can be raised from other licensed companies; it is not about funding during special administration. The clause provides for Government funding to be recouped via charges on the industry.
 If the hon. Lady contacts Library staff, she will find that the fact that a Library note uses analogies or comparative cases does not mean that it is implying that the situations are identical. I thought that I made that point clear earlier. The case that she raised is not identical to one that we envisage arising, because there are issues about whether there is a natural monopoly. There are competing companies, and other issues could well mean that any future administration of a company in this area was different and treated differently by the Commission, in particular, in giving 
 permission for the Government to provide assistance. That is what this clause and previous ones deal with.

Anne McIntosh: I am sure that the Minister does not mean to be as obtuse as he appears to be, but the Railways and Transport Safety Bill, which was enacted in 2003, specifically set out the role of the regulator. The Minister's background, like mine, is in Scots law. Most of our law is codified and the position would be set out. That is our tradition, and the Government have a tradition of setting the position out in other Bills. I cannot speak about the Water Act 2003, because I am not so familiar with that, but the position for the rail sector is clear. He has not satisfied me on that point, and I repeat that the record will speak for itself.
 I specifically referred to a situation that the Minister seems to be ignoring. He says that there is no monopoly. We know that there is a duopoly in Scotland, and there is clear potential for a monopoly to emerge should the two companies operating in this sector in Scotland merge. Perhaps our definitions of a monopoly are not the same, but if the two companies merged, I would consider that to be a monopoly, and presumably he could not disagree. I would have thought that these remarks carried most force with reference to Scotland. 
 I was interested to hear the Minister say that clause 166 calls on other licence companies to make up the shortfall relating to the costs of another utility company going into administration. That would be an amazing precedent to set. I am not sure what provision other companies, which have done nothing wrong and have not contributed to the insolvent company becoming so, can be expected to make out of the blue. That seems extraordinary. However, we have made the points, and I am sure that there will be an opportunity to return to them on Report or once the Bill is implemented.

Andrew Stunell: It is good to serve under your chairmanship again, Mr. Sayeed. As the Minister tried to explain the distinction for the first, second and third times, I became increasingly mystified. He has just had a fourth go. It appears in his mind to have something to do with whether the company is in a monopoly or strongly regulated environment, or in a competitive environment. That seemed to be the distinction that he drew between British Energy and other companies that might be subject to the clauses. However, British Energy is not the only nuclear generating company and it is certainly not the only generating company, so it is evidently in some sort of competitive environment.
 As the hon. Member for Vale of York pointed out, in Scotland, one might quickly see a situation in which there was a monopoly or a constrained duopoly. If the Minister's argument is that British Energy is in the competitive field and the others are not, the situation can swing in either direction. The more one looks at it, the more it is apparent that there is no difference between the situation that affects British Energy and the market in which it operates, and the situation affecting putative companies that might get into difficulty in the future. 
 I thought that I had offered the Minister the opportunity to write to the Committee so as more fully to explain his case. The more I hear him try, however, the more I think he needs to take time out to explain it to us. Is he saying that the difference between British Energy and other companies has nothing to do with its competitive or market situation, but has more to do with the fact that it is a nuclear producer and the others are not, or is he saying something completely different? The European Commission has not yet given a judgment on the British Energy situation—a point that was recorded when it published its interim result a couple of days ago. This is very much work in progress, both as regards British Energy and the applicability of these clauses to future companies. These are quite important issues and I do not believe that the Minister has done justice to them so far this morning. 
 Question put and agreed to. 
 Clause 166 ordered to stand part of the Bill. 
 Clauses 167 and 168 ordered to stand part of the Bill.

Clause 169 - Appeals to the Competition Commission

Andrew Stunell: I beg to move amendment No. 222, in
clause 169, page 128, leave out line 12 and insert—
 '( ) a person who is a party to the document designated under subsection (2)(b) to which the decision relates;
 ( ) any other person whose interests are materially affected by it; or'.
 We now come to appeals against decisions made by the Gas and Electricity Markets Authority. The amendment relates to those people who are competent to become involved in an appeal. That is restricted under subsection (3) to 
''a person whose interests are materially affected'' 
by the decision. On the face of it, that seems a sensible provision. The difficulty is that the test of material effect is complex to administer as far as the code parties are concerned. The Bill does not say whether materiality is to be assessed in absolute terms, in relation to profits or in relation to something else. 
 We fully accept that an important part of any appeal process is that it should be dealt with speedily and efficiently. Under our amendment, any person who was a party to the document would be in position to appeal without the need to demonstrate material effect. That would reduce the time involved, because it avoids the need to assess that question as far as the code parties are concerned, and the Competition Commission could progress an appeal without delay. 
 The Minister may argue that opening this up to anybody who is a signatory or party to the document might encourage frivolous appeals. However, the Competition Commission is empowered to award costs in the case of appeals brought by any electricity and gas licensee, which would clearly deter frivolous appeals. Nor can an appeal simply be launched to delay the implementation of an unpopular decision because the Competition Commission has the 
 discretion on whether the decision should be suspended during the appeal process. In other words, frivolous, vexatious or delaying appeals will simply be overridden. 
 A similar amendment was discussed in the other place, and the Minister said that it should be discounted because the majority of the industry wanted a quick process and therefore would not favour it. However, having been asked, although it wants a quick process, most of the industry supports the amendment. It thinks that the hassle and the potential for confusion in having to show material effect, especially as the Bill is silent on how it should be judged, would produce more delay and trouble than the amendment. 
 The amendment would simplify the process and avoid the problem of dual jurisdiction, in which a code party that is found by the commission not to be materially affected by an Ofgem decision nevertheless can challenge it under judicial review on the lower test of a sufficient interest. The proposal would improve the Bill and I hope that the Minister will support it.

Nigel Griffiths: I shall explain why I will not support the Lib Dem-Tory coalition amendment. The hon. Gentleman has tabled amendments that were tabled by the Conservatives in the other place and put a Lib Dem stamp them. He raises two issues. First, he claims that the materially affected test will be too complex to administer. I reject that claim. Participants will have to show only that they are affected by a decision and it will be for the commission to judge whether they meet the test. The commission is confident in its ability to do so.
 Secondly, the hon. Gentleman, who used various adjectives and adverbs to describe the material test, said that it will be complicated and prevent the system from working speedily and efficiently. The provisions and the time scales in the process have been drawn up in consultation with the Competition Commission. I am informed that it is satisfied that it can reach a decision on whether to grant leave to appeal, including determining whether the materially affected test is met within two weeks of an application being made. 
 I cannot accept the amendment, as its effect would be that any persons who are not materially affected by a decision could appeal against it. Our aim is to streamline the matter, as my noble Friend Lord Whitty made clear in the House of Lords. I urge the Committee to resist the amendment.

Andrew Stunell: I thank the Minister for his remarks, although not for trying to poison my amendment by attributing it to the Conservative party.
 The Minister's reply is disappointing. He ignored the substantial point that those people whom GEMA rules are not materially affected, but who dispute it, must go through a process that might ultimately lead to judicial review and to a far greater delay and inconvenience to the industry and to other licence holders than if this simple amendment were accepted. 
 As I wish to reserve my right to return to the proposal, I beg to ask leave to withdraw the amendment. 
 Amendment, by leave, withdrawn. 
 Question proposed, That the clause stand part of the Bill.

Anne McIntosh: Will the Minister be good enough to explain how the term ''materially affected'' in subsection (3)(a) will be interpreted? Will it be given a broad or a narrow interpretation? The Government are committed, under subsection (2), to consult on the codes to be designated. Can he tell us in what form, and with whom, that consultation will take place?
 We are delighted that the Liberal Democrats have chosen to take on the Conservative mantle from the Lords, albeit under a slightly qualified guise. However, it is disappointing that Lord Whitty was unable to accept the thrust of the original Lords amendment, which—I put it to this Minister—was clearer in terms of defining which parties would be ''materially affected'' and which had a sufficient material interest. I understand that the deadlines are extremely tight, as appellants will have 15 days in which to lodge an appeal, and the Competition Commission has given a further 20 days in which to submit its observations. Can the Minister confirm that those are the timetables? I understand that there will be a cost implication to the appeals procedure, so can he spell out what that will be?

Nigel Griffiths: I am happy to do that. The hon. Lady asks how wide or narrow will be the definition accepted by the Competition Commission. As with the courts, it is not for us to determine how wide or narrow will be the definition accepted by a judicial or quasi-judicial body. It will obviously want to act in an appropriate way and knows that any failing involving going too wide will be subject to other proceedings such as judicial review. As the Minister who had considerable responsibility for setting up the Competition Commission, I am heartened by the fact that such incidences have not, to my knowledge, taken place. That is a vote of confidence in the commission.
 I listened to what the hon. Lady said about the consultation on codes, and there will be written consultation. The procedures have been clearly set out by Parliament, with targets, and I expect us to be able to meet those targets to give people adequate time to respond to consultation. All those bodies that are involved in the industry—companies, regulators and non-governmental organisations—have carefully followed the Bill's course, both here and in the other place. I would have thought that they are well up to speed and anticipate what the codes will contain. Indeed, they have probably helped to inform the drafting of the codes, and we are grateful for that. 
 The hon. Lady asked another helpful question about the cost implications, which are important to consider. I am advised that the current estimate is £75,000 for each Competition Commission case. We 
 have allowed provisions under clause 173 for the industry to recover costs. I hope that those answers satisfy her.

Anne McIntosh: I am grateful to the Minister for those answers. I should like to place on record my understanding that—because the Liberal Democrat amendment and the revised text of the Bill specifically leave out those with sufficient interest—rather than having an appeal, the Government have made themselves a hostage to fortune by allowing the possibility of a flood of appeals to judicial review, rather than to the Competition Commission. If one tots up the number of cases that might be brought to the commission in one year, the Minister said that it would cost £75,000 per case, but the costs of judicial review would be substantially higher. On an average annual basis, the Government's regulatory impact assessment figures show that it would be equivalent to £5.7 million to £11.5 million per year. That seems an extraordinarily high figure; the Minister might now regret not having accepted the Lords amendment. The figures will speak for themselves.
 Question put and agreed to. 
 Clause 169 ordered to stand part of the Bill. 
 Clause 170 ordered to stand part of the Bill. 
 Schedule 22 agreed to.

Clause 171 - Determination of appeals

Andrew Stunell: I beg to move amendment No. 220, in
clause 171, page 129, line 29, at end insert—
 '( ) In applying the test in subsection (4)(c), the Competition Commission must consider whether it agrees with the conclusion that GEMA reached in weighing up the matters or purposes and must allow the appeal if—
(a) it does not agree; and
(b) it considers that its conclusion is clearly and substantially better than that reached by GEMA'.
 The amendment relates to subsection (4)(c), which was inserted by the Government during debate in the House of Lords, and is intended to explore and to provide an opportunity for the Minister to tell the Committee more about how subsection (4)(c) is to be interpreted. It is obviously important that any appeal system goes beyond simply looking at procedural matters and considering whether a decision made by Ofgem was in itself perverse and wrong on the case's merits. In response to that realisation, the Government tabled an amendment in the House of Lords. However, it is written in an open-ended way and this amendment simply sets out some conditions that might apply to subsection (4)(c), such as if the Competition Commission does not just disagree with GEMA's findings, but 
''considers that its conclusion is clearly and substantially better than that reached by GEMA''.
I should like to give the Minister the opportunity to explain more fully to the Committee the import of subsection (4)(c). I shall listen carefully to his response.

Nigel Griffiths: I have reassuring words for the hon. Gentleman. Because he has based his amendment on a Labour amendment, he is on much safer ground, and shows that his previous lapse of judgment has been rectified. I welcome the opportunity provided by the amendment to clarify the clause's effect on the nature of the appeals process: it is not quite encapsulated by the amendment and I am grateful for the opportunity to set out in detail why.
 The clause provides for an appeal by way of a review of Ofgem's decision on its merits. It falls short of providing for a full rehearing or investigation of all the issues by the Competition Commission, which will review Ofgem's decision against the objectives of the code in question and its statutory duties. In doing so, it can consider how Ofgem weighed the matters before it. It will also review whether the decision was correct in fact and in law. The clause provides that the appeal can be allowed if the Competition Commission is satisfied that a decision was wrong. In saying that, we mean that the commission should adopt the same approach as the Court of Appeal when hearing an appeal against a decision of a lower court. We believe that the clause, as drafted, gives legislative effect to that intention and is preferable to providing that an appeal should be allowed when the Competition Commission decides 
''its conclusion is clearly and substantially better than that reached by GEMA'', 
as proposed by the amendment. 
 When will the Competition Commission be able to say that a decision is wrong? It is clearly Ofgem's job to set its policy in order to reach its decisions, and these provisions do not alter that. However, in circumstances in which Ofgem chooses from a number of possible options to implement its policy, the Competition Commission will be able to review those options. If in relation to the exercise of discretion by Ofgem the Competition Commission considers that an alternative approach is permissible, it must ask itself two questions before it can hold that Ofgem had erred. First, is the other permissible approach better? Secondly, does the difference between its view and Ofgem's fall outside the boundaries of reasonable disagreement? The commission can say that Ofgem's decision was wrong only if it satisfies both those criteria. 
 The Competition Commission will therefore look at the substance of the decision not just the process by which it was reached. It should be clearly understood that no matter on which Ofgem has discretion to review a code modification would fall outside the scope of the commission's power of review. The commission will not however hold a rehearing requiring it to rework all the analysis. That would add substantially to the length of the process and introduce an unacceptable level of regulatory uncertainty and delay in this instance. 
 We are therefore providing a tailored appeals mechanism. It is different from a judicial review, which does not allow a review of the merits of a decision. It is also different from a full rehearing of a case such as is possible within the scope of the provisions in the electronic communications sector. It is a tailored mechanism, and I am confident that it will suit the purpose for which it is designed. I hope that after that legal and technical explanation the hon. Member for Hazel Grove (Mr. Stunell) will withdraw his amendment.

Andrew Stunell: I thank the Minister for that full and comprehensive explanation of the intentions behind subsection (4)(c). There may be a few rough edges to consider such as that the Competition Commission can act only where a difference of view is beyond the boundaries of reasonable disagreement. Clearly there is scope for a good deal of discussion about that. In view of the Minister's helpful response, I beg to ask leave to withdraw the amendment.
 Amendment, by leave, withdrawn. 
 Clause 171 ordered to stand part of the Bill. 
 Clauses 172 to 174 ordered to stand part of the Bill.

Clause 175 - Meaning of electricity supply

Question proposed, That the clause stand part of the Bill.

Anne McIntosh: I welcome the clause. I refer the Minister to our earlier discussion about the review of the renewables obligation in its entirety in 2005. Obviously the implementation of the review of the climate change levy will be subject to a ministerial decision. He will be aware that the climate change levy was sold to the industry as having the advantage of incurring a reduction to national insurance contributions by the employer of 1 per cent and that the Government then chose to increase the employers' contribution by 1 per cent. Maths is not my strongest point, but I hope that he will follow me when I say that that will have negated—

Jonathan Sayeed: Order. I am perplexed as to how this is germane to clause 175. I hope that the hon. Lady will demonstrate that it is germane.

Anne McIntosh: Indeed. Some renewables obligations benefit from a reduction to the climate change levy, but not all. What are the implications for renewables obligations that benefit from exemption from the climate change levy? How does that compare with producers of renewables that are not exempt? Does the Minister accept that the reduction is negated? Will the Minister also explain what the initial start-up cost to obtain a licence will be? Page 112 of the regulatory impact assessment states:
 ''There would be initial start-up costs to obtain a licence and to plan, and prepare, for the Renewables Obligation and Climate Change Levy.'' 
 I broadly welcome the thrust of the clause, which is to correct an anomaly in the definition of supply. Electricity supply is defined as being by means of a distribution system and therefore excludes the conveyance of electricity to customers whose supply does not pass through a distribution network. The Minister may have had the benefit of seeing to what extent the security of supply provisions of the European constitution will relate to electricity supply. I gather that those provisions are covered by one of the preliminary articles—I think article 3—and I wonder how the new wording of the European constitution will affect this clause, which sets out the meaning of electricity supply.

Nigel Griffiths: I welcome the hon. Lady's welcome for the clause. However, thereafter, she lost me and the rest of the Committee. As I scrambled in my notes for something on national insurance, she moved on to security of supply.

Anne McIntosh: The Minister will be aware that the renewables obligations that benefit from exemption from the climate change levy will have a competitive advantage over those that do not. The Government negated the 1 per cent. national insurance contribution exemption by increasing the level by 1 per cent.—perhaps that escaped his attention.

Nigel Griffiths: I am sure that members of the Committee found that explanation most helpful, but I did not. I understand that the start-up costs are the same for any supplier. Most, if not all, will already have a licence, but if the hon. Lady requires further clarification, I would be happy to provide that.
 The hon. Lady is right that the clause corrects the anomaly that the Electricity Act 1989 does not include electricity conveyed over the transmission network; it covers the supply of electricity conveyed by a distribution system. The aim of the clause is to ensure that the conveyance of electricity to customers whose supply of electricity does not pass through the distribution network will be legally supplied. The clause amends the definition of supply to include electricity conveyed over the transmission network. I hope that we can return to her initial welcome for the clause and that there is unanimous support for it standing part of the Bill.

Anne McIntosh: The omission in the Minister's remarks relates to the part of the EU constitution dealing with security of supply. Has the energy chapter been dropped completely? Is there no reference to it in article 3 or any other article? That will have implications for clause 175, but the Minister was silent on that. I understand that the text of the constitution will not be available in English until September, but presumably he will be aware of the negotiations. The Prime Minister assured the House yesterday that there is no reference to an energy chapter. However, our understanding is that there is a specific reference in article 3 at the beginning of the constitution.

Nigel Griffiths: I am happy to read the constitution in French and to write to the Committee on the matter in English.
 Question put and agreed to. 
 Clause 175 ordered to stand part of the Bill.

Clause 176 - Meaning of ''high voltage line''

Question proposed, That the clause stand part of the Bill.

Andrew Stunell: Has the Minister received any representations about the differentiation between the definition of high voltage lines in Scotland and that in England and Wales? In the discussions that I have had with parts of the industry, a little concern has been expressed that a distinction has been drawn that means that the grid in Scotland is a different animal from that in England and Wales. Has he received representations, and on what basis was the distinction arrived at?

Nigel Griffiths: I welcome the opportunity to clarify that point. Section 64 of the Electricity Act 1989 states that
'''high voltage' means . . . in relation to Scotland, an electric line of a nominal voltage not less than 132 kilovolts''. 
Clause 176 is slightly different, because it refers to high voltage in Scotland as 
''a nominal voltage of 132 kilovolts or more''. 
That formulation is clearer, but there is no real change in the definition. 
 The 1989 Act defines high voltage in relation to England and Wales as 
''an electric line of a nominal voltage exceeding 132 kilovolts''. 
Clause 176 does not specifically mention England and Wales, but they come under subsection (1)(b) and the words ''in any other case''. No change has been made in the definition of high voltage. The clause defines high and low voltage in relation to offshore lines in the same terms as the definition for onshore lines in Scotland. 
 I hope that that explanation reassures the hon. Member for Hazel Grove (Mr. Stunell) and those who made representations to him, but I am happy to try to answer any further questions that he has on the issue. 
 Question put and agreed to. 
 Clause 176 ordered to stand part of the Bill.

Clause 177 - Prepayment meters

Michael Weir: I beg to move amendment No. 34, in
clause 177, page 133, line 26, at end insert—
 '(1A) The cost of gas supplied through a pay meter shall be supplied at no more than the average unit cost for gas supplied to customers by other means of payment.'.

Jonathan Sayeed: With this it will be convenient to discuss amendment No. 35, in
clause 177, page 134, line 16, at end insert— 
 '(2A) The cost of electricity supplied through a pay meter shall be supplied at no more than the average unit cost for electricity supplied to customers by other means of payment.'.

Michael Weir: The amendments represent an attempt to air an issue that causes me concern in relation to the cost of energy. Amendment No. 34 deals with gas, and amendment No. 35 is a mirror amendment, dealing with electricity. It has been said many times that cost savings can be sought through cheaper gas and electricity deals, but many such deals are not available to those sections of the population that buy energy through prepayment meters. Since the introduction of the new electricity trading arrangements in England and Wales, there have been various claims about the reduction in the cost of electricity to consumers, and similar claims have been made about gas. However, there are at least arguments as to whether domestic consumers have benefited to the same extent as the industry from lower electricity prices.
 I draw the Committee's attention to page 44 of the Library notes, which state: 
 ''The tariff paid by domestic electricity consumers depends, in part, on the method of payment used. Broadly speaking there are three distinct options: standard credit, direct debit and prepayment. Standard credit is, in effect, the default method of payment for most electricity consumers. Choosing to pay by direct debit confers a discount, while prepayment involves a surcharge.'' 
Therein lies the rub. Those who can afford to pay by direct debit can make significant savings on their electricity and gas bills, either by changing suppliers or by taking advantage of deals offered by their existing supplier. Those on the standard method have the option of doing so but those on prepayment meters have no realistic chance of achieving lower energy costs as they are penalised because they pre-pay for electricity. 
 I draw hon. Members' attention to Energy Review, a recent publication from Energy Action Scotland, which mentions the impact of lower energy prices on fuel poverty. It accepts that the number of households in fuel poverty has fallen, mainly due to lowering the costs of energy and states: 
 ''Focusing on the impact of fuel price on fuel poverty, the price of electricity fell by 1.9 per cent. and gas by 1.2 per cent. from 2002 and 2003. Further savings were made by switching suppliers: average saving for electricity (direct debit) was £22 and for gas £27. It is expected that prices will rise in the period to 2010, but energy will still be cheaper in real terms than 10 years ago. The report states that changes in prices highlight the importance of sustained improvements in energy efficiency.'' 
That is all true. 
 I raised the matter on Second Reading with the then Energy Minister who, when asked about the benefits to the consumer from BETTA—the British electricity trading and transmission arrangements—mentioned the possibility of making savings by switching suppliers. That is right up to a point, but how easy is it for someone on a prepayment meter to swap suppliers? The bulk of those on prepayment meters are people on low incomes who have had difficulty paying for energy supplies in the past. I shall be blunt: it would be difficult, if not impossible, to switch to another energy 
 supplier who is prepared to give those people a better deal. They would certainly find it impossible to switch to any attractive deals on offer that are dependent on payment by direct debit. I suspect that many of them do not have bank accounts. That is important because in the north of Scotland, for example, the average proportion of fuel-poor households is 4 percentage points above the Scottish national average and in some areas, particularly the islands, it is considerably above that. It is a serious problem. 
 Those who are already energy poor are likely to benefit least from a drop in energy prices. As the Library notes bluntly put it, ''Prepayment involves a surcharge.'' It is fair to say that in some areas, although not in all, there is a premium on the standing charge rather than on the electricity itself; that is a separate matter that needs to be tackled. Utility companies say that they are required to have prepayment meters because otherwise some customers would never pay, which is the same argument that they use about disconnections. They also say that there is a considerable problem of fraud in respect of meters, and many are considering new ways of using them—rechargeable keys, for example, rather than coins or tokens. It would naive to deny that there are problems, but those customers who struggle to pay for their energy through meters get a bad deal simply because they are poor. Those who are more able to pay benefit disproportionately from the available measures. 
 My amendment is an attempt to pass on some of the benefits of lower energy prices to consumers who are on prepayment meters. It would be impossible to frame an amendment that would give them the same deal that is available to those most able to benefit, so it has been drafted to give them an average benefit: that is, the electricity and gas companies will be required to look at all the deals that they are offering to other customers and calculate an average price which would then be charged to those with prepayment meters. That would bring down the price of energy to those on the meters and, in a modest way, contribute to reducing fuel poverty. 
 The Minister may say that the amendments could be better drafted, and that this is not the right place for them. However, the issue must be addressed and more thought must be given to how we can ensure that those in this situation can benefit from lower energy prices.

Richard Page: This is a caring amendment, and I welcome the thinking behind it. I see it as an opportunity for equality of treatment of various individuals. The hon. Gentleman's remarks brought back memories of my grandmother, who has long gone from this mortal coil, putting the shilling in her gas meter in south Wales to keep the gas going as there was no electricity in those days. As you will appreciate, Mr. Sayeed, I am so much older than everybody else in this Room, so my relatives are also that much older. I remember the panic when the shilling dropped and the gas went out, and we all had a fumble in the dark. I did not, because I had no money, and I was too young to fumble in the dark.
 It would be immensely helpful if, in giving the Minister the line to take in speaking to the amendment—he obviously has no independent thoughts of his own, because he is just reading out what is put in front of him—the officials could put ''Accept'' or ''Resist'' in very large letters upside down so that we can read what the his line will be. We could adjust all our arguments accordingly, either to reinforce his enthusiasm to accept or to argue vehemently why he should not resist. 
 The hon. Member for Angus (Mr. Weir) mentioned that the amendments have a minor problem in the phrase 
''the average unit cost for electricity supplied to customers by other means of payment.'' 
As we know, different suppliers give a variety of payment incentives, according to their costs of collection. Costs of collection is a considerable sum, which is why a number of organisations have come together for joint collection costs of gas and electricity, and I can foresee that happening to other consumer commodities. 
 As the hon. Gentleman said, costs through a prepayment meter hit the poorest members of society. He did not pull any punches when he said that they were often poor payers—people who would not be given credit or who did not have a bank account. Equally, a number of elderly people have great worries about going into debt, and if they put their money in the meter, they know that they are not going to be hit with a huge bill at the end of the three-month period. I accept that, for a substantial section of society, we need prepayment meters. The poorest members of society get hit with increased costs because they are poorer, which makes them even poorer, and they get into greater difficulties and trouble. 
 I am thinking particularly of hire purchase. If one has independent means, one does not need hire purchase, but for people who sign up to such agreements, the loadings are always greater. A person in that position does not go out and buy a brand new Rolls-Royce; they go out and buy a battered 10-year-old used car. The hire purchase rates are so much greater on the older car than on the brand new one. Therefore that person has so many extra costs to meet out of their disposable income that they become even poorer. Some interesting studies have been carried out in the United States about how people get dragged even deeper into debt with increased costs and lower standards of living, purely because they are hit by those extra costs. 
 I shall be interested to hear how the Minister replies. This is a golden opportunity for him to prove that the Labour party has not forgotten its roots and is concerned about the poorer members of society, and that not all its beliefs have been abandoned. If the Government can load electricity prices in the way that they have loaded prices for renewables for all the good and justifiable reasons, surely they can do exactly the same for the poor people of this country.

Brian White: Is the hon. Gentleman aware of the effect of the Utilities Act 2000, which was to reduce electricity prices for everyone, but particularly for the poorer people?

Richard Page: I am aware of the way in which electricity prices have operated over the last few years, but what has been created in pulling down prices has sown the seeds for increased electricity prices in future. It was a short-term gain that will be at a long-term cost. So often politics works on exactly that basis. Things must be got right for today's election and no one worries about the situation tomorrow. We are looking at relative costs for the wealthy or the reasonably well-off, who can afford bank accounts and to pay by direct debit, and the poor who cannot. What will this Labour Minister do about it?

Nigel Griffiths: As the Minister with responsibility for tackling fuel poverty, I welcome the opportunity to discuss the issue. Indeed, it was an issue that first came to my attention when I was a member of the electricity consultative committee in Edinburgh 22 years ago. I have watched the welcome developments in this area. I am grateful that the hon. Member for Angus has welcomed the fact that we have reduced the number of households who suffer fuel poverty by 2 million in the past seven years. I would also be the first to agree with him that we must do more.
 George Bush discovered Christianity at the age of 40 and the hon. Member for South-West Hertfordshire (Mr. Page) seems to have discovered fuel poverty after a similar length of time. People may doubt the sincerity of both of them.

Richard Page: The Minister must try to avoid stereotypes. Members on both sides of the Committee come from a variety of backgrounds and have a variety of achievements. My training and background fully qualify me to make any remark I care to about the poor and about my concern for them.

Nigel Griffiths: The hon. Gentleman made only two mistakes. First, he had a jibe at me about reading from notes. I do not care to be provoked on these things. Secondly, many of us on Government Benches, and other hon. Members, have a long history of fighting rip-offs of poor people by electricity companies. His contribution was less rip-off and more Rip Van Winkle in going back to his late lamented grandmother.
 In dealing with the substance of this important amendment, I shall address not the textual problems that the hon. Member for Angus highlighted, but the principle and effect of the amendments. He particularly highlighted the impact of fuel poverty in north Scotland, and we must all strive to narrow that gap. However, I am sure that he will know that fuel poverty in north Scotland is due to a combination of low income and high fuel consumption, which is necessary because of the climate. It is not necessarily related to pre-payment meters. I have not seen figures that demonstrate a higher use of pre-payment meters. 
 If he has them, I would be pleased to hear them, but I am not sure that they are available—that is not a comment against him if he does not have them. 
 Around the country, there are concerns about the treatment of the large number of second homes. The Government have moved in the past year to consider the council tax provision for second homes, especially those owned by more prosperous people. I am advised that there is a trend of people in second homes opting for pre-payment meters because their consumption is smaller and therefore, despite the fact that they pay a slightly higher price, their fuel bills work out cheaper. 
 As Minister with responsibility for fuel poverty, I point out that about 50 per cent. of those who are fuel poor are senior citizens. Only 5 per cent. of senior citizens have pre-payment meters. Therefore, the thrust of the Government's action with the utilities is wider than the issue of pre-payment meters. 
 Those substantial points lead me to resist the amendment. There are questions about opting for the average price of electricity and whether that will force prices up. However, I hope that the hon. Member for Angus will see that there are arguments against the amendment and other ways of tackling the problem. He will have seen a dramatic drop during his life of what I call the cut-off culture by the utilities—the abuses of the past are no longer tolerated. The pre-payment meter issue is not best tackled by his amendment.

Michael Weir: I hear what the Minister is saying, but I am not convinced. My point about north Scotland was purely illustrative. The problem affects not only the north of Scotland—it is a problem for many urban areas, and rural areas are also affected.
 I do not think that second homes are the issue. Many second homes have pre-payment meters because they are let out—that is for administrative reasons. Unless the Government are prepared to take a stand, no change will be made. The issue affects many people, and I shall press the amendment to a division. 
 Question put, That the amendment be made:—
The Committee divided: Ayes 3, Noes 12.

Question accordingly negatived. 
 Question proposed, That the clause stand part of the Bill.

Anne McIntosh: I was almost moved by the Minister's remarks on fuel poverty and his rather stinging attack, which I thought was unwarranted, on my hon. Friend the Member for South-West Hertfordshire. I therefore hesitate to commend to the Minister the pleas that have been made on behalf of vulnerable customers by the National Consumer Council. I know that there has been a spate of cases in parts of the UK in which the provisions of the Data Protection Act 1998 were blamed for preventing social services from sharing information with the electricity company concerned. In one particular tragic case that led to the death of two pensioners. Has the Minister seen the rather lengthy, although poignant and pertinent, submission by the NCC? Is he minded to return with a clarification of that area, perhaps on Report? If he does not, perhaps we will return to the matter.

Brian White: The hon. Lady mentioned the Data Protection Act. Is she aware that in many of the cases in which data protection is cited, the problem is that the administrative procedures used by the companies concerned do not take account of the Act? The Act allows people to pass on information, provided that companies' administrative procedures are in order.

Anne McIntosh: I am grateful to the hon. Gentleman for his remarks. Whether the 1998 Act is being cited spuriously, or incorrect administrative procedures are in place, it is incumbent on all of us to reach out to people who are in that vulnerable position. In my surgeries, I have been in the situation where we had to feed the meter, in some rather cold public buildings. I am not claiming the same degree of vulnerability, but we are all mindful of the scenario to which my hon. Friend the Member for South-West Hertfordshire referred.
 Hon. Members on both sides of the Committee recognise that the administrative procedures are insufficiently clear. I therefore make a personal plea to the Minister to clarify those procedures. Should there be uniform procedures, or should best practice be adopted? The safety net situation should be clarified, because the NCC believes that that is necessary. Moreover, clarification is needed of the role of the social services departments and their liaison and communications procedures with the electricity companies, as well as of the procedures within the electricity companies. I agree with the hon. Member for Milton Keynes, North-East (Brian White) that citing the Data Protection Act 1998 may be a spurious defence—I do not believe that that was an intended consequence of the Act—but it would be helpful to include in the Bill what the standard best practice should be.

Nigel Griffiths: The clause gives Ofgem a general power to consult on and, in due course, propose regulations to extend the range of debt that could be collected from a prepayment meter. I have not had a chance to study the National Consumer Council paper, but I hope that my assurance that Ofgem will
 consult before proposing regulations means that the views of distinguished organisations such as the NCC, and those of hon. Members, will be taken into account.
 My hon. Friend the Member for Milton Keynes, North-East rightly pointed out the data protection issues, which Ofgem is addressing following discussions with the Department for Constitutional Affairs. It has clarified the application of data protection, which I discussed briefly with Richard Thomas, who is taking a practical approach to the matter, as the Act intended; we do not want people to prevent information from being exchanged for overly bureaucratic reasons. We do not want another tragedy such as the one involving two old people, and I understand that the utility has given assurances in that respect. However, we will never know whether that case centred on a data protection issue and whether anything could have been done about that. 
 I repeat my assurance that the clause gives Ofgem the general power to consult on the proposed regulations, which will allow informed opinion such as that of the NCC and hon. Members to be taken into account. Such regulations would be subject to the approval of the Secretary of State and due parliamentary process. I hope that that is reassuring enough for hon. Members to support the clause.

Anne McIntosh: I am disappointed by the terms of the Minister's general assurance. I plead with him to look kindly on a form of words that would have the support of the NCC and Citizens Advice, and perhaps that of some of his hon. Friends. There are deficiencies in the present procedures, and an appropriate amendment on Report would be an opportunity to close that loophole.
 Question put and agreed to. 
 Clause 177 ordered to stand part of the Bill. 
 Clauses 178 and 179 ordered to stand part of the Bill.

Clause 180 - Assistance for areas with high distribution costs

Michael Weir: I beg to move amendment No. 36, in
clause 180, page 136, line 30, at beginning insert—
 '( ) There shall be an over-riding principle that no area of the United Kingdom shall be subject to higher distribution charges than any other.'.
 This a small, but vital, amendment. It will be no surprise to the Committee that this is a matter of great concern to the north of Scotland, and I declare an interest as a consumer in that area. The amendment might also have an impact on many other remote areas in the UK. It may seem odd that a Scottish nationalist should table such an amendment, but if BETTA comes into being, there will be a UK-wide electricity generation and distribution system, and we are nothing if not pragmatic. 
 The regulatory impact assessment, which hon. Members will have read, gives a good review of the background of the hydro benefit. The original aim was to restrict the otherwise huge difference in the costs of distribution. In northern Scotland the cost is vastly greater than in any other area. The Monopolies and Mergers Commission concluded in 1995 that the principle of hydro benefit was 
''in the public interest because it protects consumers, and especially those in rural areas, in respect of the prices charged for electricity.'' 
Unfortunately, Ofgem concluded last year that those licence conditions should be removed in order to comply fully with European law. That echoes the Committee's earlier discussions, since part 3 of the Electricity Act 1989 requires the regulator to comply with European law, irrespective of its duties and principal obligation to protect consumers' interests. 
 I should give credit where it is due, and acknowledge that the Government have reacted to the worries that were raised about the matter in Scotland and inserted this clause in the Bill in the other place. If they had not done so, we would have had the problem of high distribution charges being imposed, which would be very serious for northern Scotland. For example, as detailed in the regulatory impact assessment, some 13 per cent. of households in Scotland meet the Scottish Executive's definition of fuel poverty but, as I mentioned earlier, the incidence of fuel poverty in the 16 local authorities that lie wholly or partly within the hydro area is approximately 4 per cent. above the Scottish average, and in some areas it is much greater than that. 
 I am concerned, however, that the amendment does not enshrine in the Bill the principle that distribution charges should always be equalised across all parts of the UK—the so-called postage stamp principle. Perhaps, with the way the Post Office is going, we should look for another name, but that is a different issue. 
 In the highlands and islands of Scotland, distribution is costed at £225 per customer, compared to the area with the next highest cost of £131 per customer. However, the benefit is not enshrined for all time, but only for a limited period. We shall return to that point on the next group of amendments. The Bill enables the Secretary of State to put that system into force, but it does not prescribe that he must do so. Given the importance of the issue, particularly in the north of Scotland, there is too much uncertainty in the clause. The amendment would ensure that the principle of postage stamp distribution was enshrined in the Bill so that it was no longer discretionary, but mandatory, to protect those in northern Scotland against hugely higher costs.

Nigel Griffiths: The amendment is unwelcome because it would make some customers pay considerably more for their electricity than at present. The effect of price equalisation throughout the country is that some energy users are currently obliged to subsidise others. The alternative approach—the hydro benefit replacement scheme in clause 180—reflects the fact that distribution costs in northern Scotland are a
 special case, being much higher than those incurred in any other region of Britain. We believe that it is a proportionate response to the situation facing consumers in the north of Scotland, particularly as its effects on the prices paid by consumers elsewhere are likely to be minimal.
 There are also a couple of technical difficulties with the amendment. The clause enables the Secretary of State to make a single order with respect to the area with the highest distribution costs. That is incompatible with the amendment's vision of price equalisation, implying that the Secretary of State should exercise a much broader power than that accommodated for in clause 180. Another effect of the amendment would be to connect the distribution price methodology in Northern Ireland—where responsibility for energy is devolved, and where there is a separate energy market—with the future British market.

Richard Page: I have read the explanatory notes to the clause with great interest, and the Minister has made various statements, and it is fairly obvious that people in the south, for example, or other areas nearer generation will have to subsidise those further away. Has he got any handle on what the costs will be and what the difference will be in what people have to pay? England already gives more support to Scotland through the Barnett formula, because it is further away and so on. That must feed through into various costs being lower for Scottish people.

Jonathan Sayeed: Order. This is a long intervention.

Richard Page: It is exceedingly long, for which I apologise, but I am trying to give the Minister a bit of time to answer, so I hope that you will suffer it in this case, Mr. Sayeed.
 The Minister also talked about the distributor with the highest area costs, but the explanatory notes talk about 
''costs that are significantly higher than'' 
those in 
''other areas''. 
Are we talking about just one area, or could a number of areas benefit from an order?

Nigel Griffiths: I am advised that the distributed cost, if it were spread, would be about £1 a year. That relates to only one area, if we considered the north in isolation. It is up to the hon. Gentleman to decide whether he can sell a price increase to his constituents on that basis. We believe that there are other ways to tackle the issue which do not appear in any way to penalise anyone for being in an area where electricity is less costly to produce. However, we recognise the steps that have already been taken to try to minimise the difference in electricity prices throughout the country, taking account of the infrastructure required to supply electricity in rural areas with a dispersed population. I am sure that more steps could be taken to improve the balance even further, but this proposal is not one of them.

Michael Weir: I have listened to the Minister and I take on board some of his points. I am not sure whether the hon. Member for South-West Hertfordshire was speaking in support of the amendment. If he wants to discuss the Barnett formula, that could be another interesting debate, but I suspect that it is not one for this Committee. I accept that there are difficulties with the amendment as currently worded. I beg to ask leave to withdraw the amendment.
 Amendment, by leave, withdrawn.

Michael Weir: I beg to move amendment No. 37, in
clause 180, page 137, line 28, leave out subsection (11).

Jonathan Sayeed: With this it will be convenient to discuss amendment No. 38, in
clause 181, page 139, line 7, leave out subsection (11).

Michael Weir: The object of the amendments is to remove subsection (11) in clauses 180 and 181 and thus to remove the time constraints and review periods. Our previous debate focused briefly on the nature of the hydro benefit and its successor, and I do not intend to comment further on that subject, other than to ask the Minister why there is a review every three years.
 Clause 181 deals with the slightly different but related problem of high transmission costs. Again, that is a particular problem in the north of Scotland. Both energy companies in Scotland, Scottish Power and Scottish and Southern Energy Group, have said that if the transmission arrangements for England and Wales are imported to Scotland, that will lead to much higher charges for Scottish generators. Scottish and Southern, in particular, is concerned about the possible impact of transmission charges on its area. 
 There have been arguments as to whether the charge should be made cost-reflective. I understand that to be Ofgem's position and that it is shared by the National Grid Company. The argument is that transmission costs should fully reflect the costs of transmission, if that does not sound too convoluted. I submit that it is a fairly extreme position and, if adopted, would mean that generators in the north and other remote areas could face very substantial transmission costs, perhaps up to four times current costs. Such an increase would kill the renewables industry stone dead, as many of the potential sites for those schemes are in remote rural areas. It may interest the hon. Member for Western Isles (Mr. MacDonald) to know that the cost of connecting schemes in the Western Isles under the cost-reflective principle could be six times the present cost of transmission. That would be fairly disastrous. 
 Again, to be scrupulously fair, I must point out that the Government have, in clause 181, reacted to that concern. I have the same concerns about that as I have about clause 180, namely that it is permissive rather than mandatory. However, the reason for the amendment is to find out why subsection (11) takes the form that it does. As it is worded, the benefit would be for five years only, possibly renewable for a further five years to a maximum 10-year period. Given the nature of the business, it seems that the relative cost of 
 transmission is unlikely to fall greatly in the foreseeable future. Why is there such a time constraint in the subsection?

Calum MacDonald: The amendments raise important questions, to which I hope the Minister will respond. Both clauses are very welcome in the north of Scotland. The first replaces the longstanding hydro benefit, which has been a necessary part of the scene since the introduction of electricity, and even survived privatisation under the Conservative Government. It would be regrettable if the hydro benefit were to disappear because of a European requirement, so I am glad that the Government listened to the case that was put to them and came up with clause 180, which finds a way round the problem.
 The measure is necessary because the geography of the highlands and islands means that distribution charges are inevitably extremely high, so something like hydro benefit will always be needed. That being the case, I question why a review is required every three years. The geography is not going to change and the population is not likely to increase massively—although it is increasing, unlike that in the rest of Scotland. However, the conditions that gave rise to the need for the hydro benefit in the past, and to the need for this clause now, are unlikely to change substantially, so it would be useful to hear from the Minister why there is a requirement for a review at such frequent intervals. 
 Turning to amendment No. 38, I can tell the Committee that clause 181 is particularly welcome in the north of Scotland. It will benefit not only companies wanting to set up renewables projects in the north of Scotland, but the whole country, which will look to the north to supply a large amount of renewable energy that will enable the whole country to meet Government targets over the next 10 or 20 years. 
 Without the clause, renewables would be in danger of being priced out of the north of Scotland. It is therefore very welcome. However, precisely because the need for the measure is unlikely to change in the next 10, 20 or 30 years, I repeat that it would be useful to know why the Government consider it necessary to have a review after five years, and why it is necessary to for this to be a sunset clause, with the requirement ending after 10 years.

Michael Weir: It strikes me that what the hon. Gentleman said about reviews occurring every five years is wrong. My understanding is that the clause can last only for 10 years—five years, then another five years—and that there is no provision for it to continue thereafter.

Calum MacDonald: That is my understanding as well. My point was not that there will be a review every five years, but that a sunset provision will mean that after 10 years the clause falls away. My concern is not simply a self-interested constituency concern arising from the effect that the provision might have on the north of Scotland; I think that there is a national—a
 UK—case for the clause because it will encourage and allow renewables generation to take off in the north of Scotland.
 If a sunset provision is embedded in the clause, companies that may be thinking of investing tens, or perhaps hundreds, of millions of pounds in developing renewables projects in the highlands and islands—and expecting a 20-year payback time on that investment—will worry that the clause will radically change the circumstances in which they will be making their investment 10 years hence. 
 To sum up, there is concern not only about the provision for reviewing the clause after five years, but, even more so, about the 10-year sunset provision. It is at odds with the Government's desire to encourage companies to invest in renewables, particularly in the highlands and islands, and it undermines the good work that the clause would otherwise do.

Anne McIntosh: I congratulate the hon. Member for Angus on moving the amendment so eloquently. Mention has been made of European Union implications for this matter. I bring to the Minister's attention the fact that there will be energy provisions in the EU constitution. The Prime Minister has a passing conversational knowledge of French, but I am slightly concerned because I do not think that his knowledge of a French legal text is quite that of a juriste linguiste or a fully qualified EU translator, so I shudder to think what he has signed us up to. Will the Minister tell us the precise implications of EU law as it impacts on clause 180 and the amendments?
 I am cognisant of the fact that the clause relates particularly to the ongoing so-called hydro benefit scheme. One would not want to detract from the background that, as the Minister mentioned, pertains in Scotland—low income, poor climate and a high energy supply cost—but would the Minister be minded to apply the clause and the amendments in other locations? Obviously I make special reference to North Yorkshire, not so much the Vale of York but the hillier parts on either side, where the cost of distributing and supplying electricity is much higher. In particular, if an application were made for undergrounding transmission of electricity, would that fall under the provisions?

Desmond Turner: As the debate has moved on to clause 181 as a result of the amendment tabled by the hon. Member for Angus, I speak in support of the point made by my hon. Friend the Member for Western Isles. Although the clause is essential to protect renewable energy from the impact of higher transmission charges resulting from a locational transmission charging regime, unfortunately, as currently drafted, it contains sunset provisions, and the implications of that are clear.
 I understand that this clause was inserted by their lordships. I suggest to the Minister that the Government consider tabling amendments on Report to deal with the issue of the sunset clause. As my hon. Friend the Member for Western Isles said, the provisions will last for a maximum of 10 years, because it is stated that schemes will run from the beginning of 
 the operation of the clause. Therefore, if an installation does not get going for a couple of years, it will receive only eight years' protection at maximum, whereas the capital payback period that investors will have to consider in relation to renewable energy generation will be 20 years. The Committee has already agreed that if we are to promote the Government's policy on renewable energy, it is essential for investors to be given confidence. If investors are to be confident, they must know that there will be consistency in market conditions over a sufficiently long time scale for them to calculate their investments. Without that consistency, there is the real possibility that investors will be frightened off and will not invest. 
 I therefore want to reinforce my hon. Friend's point and ask the Government urgently to review the sunset provisions in clause 181(10) and (11); otherwise they could devastate the prospects of renewable energy deployment in the north of Scotland, which is essential if the Government's policy on climate change is to be achieved.

Nigel Griffiths: These are important matters, and the new scheme has a number of benefits that I want the Committee to consider carefully. The cost of the new scheme, unlike hydro benefit, will not fall on just one company; it will be borne by all electricity suppliers, and all suppliers will be treated in the same way. That is why the Government are confident that the new scheme is not contrary to EC law, which is another important point that was raised.
 I shall deal with the sunset clauses in a moment. I will first address the points made by the hon. Member for Angus and my hon. Friend the Member for Western Isles, by setting out the case for a three-year review, rather than a review after five years or longer. 
 Recent evidence and experience shows that the electricity market is a changing market and that it will probably continue to change. That change will affect distribution price controls and the level of distribution costs relative to other areas, and it will reflect the impact of BETTA and Ofgem's plans to move transmission and distribution charges on to the same basis within three years. The clause gives the Secretary of State the power to take all those aspects into account when the scheme is reviewed in three years. I am advised that if we removed that power, we would remove an important mechanism by which we intend to ensure that the future level of subsidy is appropriate. No one is in any doubt of the value of the subsidy to date, and my hon. Friend the Member for Western Isles, who has taken a keen and expert interest in the matter over many years, is aware of its value as well as the complexity of the issues before us. 
 My hon. Friend rightly highlighted the issue of sunset clauses. The power set out in the Bill is designed to give a helping hand to renewables while the industry gets on its feet and gains commercial respectability and the confidence of investors. A 10-year period has been set in which to achieve that; the power is not intended to be an ongoing means of support for renewables. The 
 Government have already planned for substantial support for renewables through the renewables obligation, which hon. Members will be pleased has recently been extended to 2015.

Desmond Turner: The Minister is right in stating that the renewables obligation lasts until 2015. However, the current value of the renewables obligation to a renewables generator is approximately half a penny per kilowatt-hour on top of the wholesale price. The potential difference in transmission charges without protection would be about three times that, so, unless something changes, the benefit of the renewables obligation will be nullified.

Nigel Griffiths: In response to my hon. Friend's earlier point, I said that the provision is designed to give comfort to renewables and those investing in them over the next 10 years. The argument that it should be longer has not been accepted by the Government, hence my reference to the parallel help given through the renewables obligation. The Government believe that setting in stone a longer period than 10 years is neither practical nor desirable for a fast-evolving market.
 Future Ministers and Governments will closely monitor the trend towards the increasing use of renewables, which we all support. If further provision has to be made, so be it. However, our intention to provide support for 10 years focuses the commercial sector on ensuring that it has commercially viable products, which I believe it will increasingly have as technologies improve, rather than giving the signal that such subsidies might continue beyond that.

Calum MacDonald: Just to clarify, the Minister is saying that any renewable development—for example, a wind farm—that is set up and starts to operate in the north of Scotland over the next two or three years will suddenly find in 10 years' time that the cost of transmission and the charging regime will markedly increase compared with that for a wind farm off the coast of Northumbria or Cornwall.

Nigel Griffiths: No, I can tell my hon. Friend that that is not what I am saying. Given technological developments and investment in the transmission and distribution infrastructure over the next 10 years, the cost differential may not be of the order that someone has suggested to him.

Desmond Turner: My hon. Friend has introduced a considerable number of uncertainties, which investors will have to take into account. The only thing that is set in stone is that the protection will end in 10 years.

Nigel Griffiths: What is set in stone is the fact that investors will have protection over the next 10 years. If my hon. Friend can think of any other area of commercial activity in which there will be such certainty over the next 10 months—never mind the next 10 years—I would be interested to hear about it. However, I am not inviting analogies, because safeguarding energy production and using renewables are key Government priorities.
 No decision has been made as to whether the power will be necessary. However, as my hon. Friend knows, any decrease in transmission charges would be worth much less to a renewables generator than the renewables obligation. The figures that my hon. Friends and other hon. Members have floated are very much hypothetical, and although that does not detract from their value, they are extreme. The cost of energy production and distribution in different areas over the past five or 10 years has changed dramatically, and given developments in technology, we can expect to be equally surprised by the direction that things take in future. I take an optimistic view, and I hope that I can encourage hon. Members to do the same.

Anne McIntosh: I have listened carefully to the Minister's remarks, but I would like to repeat the scenario that I put to him earlier. We are talking about a particular renewable source of energy in Scotland, but would his Department look favourably on, for example, an application for a wind farm in Vale of York or elsewhere in North Yorkshire? In such a scenario, there would have to be transmission lines connecting the onshore or offshore wind farm to the grid. Would his Department look favourably on extending the provisions to such a location in North Yorkshire?

Nigel Griffiths: Applications from any part of the country would have to be viewed in relation to the powers in the clause, but we would, of course, have to revisit it if it was deficient in terms of providing powers to undertake desirable developments in any part of the country.

Andrew Stunell: On a point of order, Mr. Sayeed. We appear to be discussing clause 181, but I understand that we are considering clause 180 and its associated amendments. The issues are quite dissimilar, and I would like some advice before we proceed.

Jonathan Sayeed: I am happy to advise the hon. Gentleman. Amendment No. 38 refers to clause 181, so I have permitted the discussion to go wider than clause 180. There will be an opportunity for a clause stand part debate on clauses 180 and 181.

Andrew Stunell: In that case, I shall confine my remarks to clause 180 and hope to catch your eye when we come to clause 181.
 It is worth making it clear that clause 180, which refers to areas with high distribution costs, does not contain the sunset provisions that hon. Members have mentioned. It is important to make a distinction between the two clauses, which cover different areas and have different provisions. The hon. Member for Angus has ''leave out subsection (11)'' in both his amendments, but the clauses do not deal with the same issues. 
 It is necessary to include safeguard provisions for those with high distribution costs, but in the wider strategic restructuring of the United Kingdom's energy industry, which is necessary over the coming decades, we must ensure that an increasing proportion 
 of our generating capacity is nearer to the areas of largest consumption. One must therefore retain in the system some sensible location signals so that that process is encouraged through market forces. 
 Although we fully accept the need to protect an area with a special geographical problem, it is important to ensure in the long term that the energy generated in this country is closer to the south and south-east of the country—I mean both the United Kingdom and England—where there is the fastest increase in energy consumption. I hope the Minister recognises that, in reaching a special arrangement, as clause 180 does, we must not lose sight of the need to provide appropriate location signals.

Calum MacDonald: In contrast to the point of order, the hon. Gentleman's remarks have strayed on to the territory of clause 181. Regardless of where the energy is generated, clause 180 is about the costs of distribution to consumers in the highlands and islands, which is a huge geographic area with a small population. Whether the energy comes from the highlands and islands or is pumped from the central belt, there is still a high distribution cost that must be offset by a mechanism such as a hydro benefit or the one in clause 180.

Jonathan Sayeed: Order. Before the hon. Member for Hazel Grove responds, I am grateful to the hon. Member for Western Isles for doing something that I should have done, which is to remind the hon. Gentleman that we have not yet come to the stand part debate on clause 180, on to which his discussion and comments have strayed. If he confined his comments to the amendment, I would be most grateful.

Andrew Stunell: Thank you, Mr. Sayeed. I have been quite properly hoisted by my own petard, so I will conclude and seek to catch your eye later.

Michael Weir: I have listened to the Minister's response and I am not satisfied. The hon. Members for Western Isles and for Brighton, Kemptown (Dr. Turner) made very good points about the clauses, but I have heard nothing from the Minister to explain why we have the reviews when we do.
 The hon. Member for Western Isles rightly stated that things are unlikely to change in the foreseeable future. Although the Minister talks about the changing costs of energy, the relative costs between the north and the south are unlikely to change very much because the same costs of distribution and transmission in the north will remain whatever the overall price of energy. 
 The sunset provisions and clause 181(11) in particular are of great concern. I was interested to hear what the hon. Member for Brighton, Kemptown said about the renewables obligation, but if I heard him correctly it runs out in 2015. That is just 11 years away, so we could have a problem with it and the scheme in subsection (11) running out at about the same time. That could be disastrous for any renewable energy projects that are up and running. Many of those projects will take a long time to become established and produce electricity. 
 The sunset provisions are misguided. This is not, as the Minister suggests, a case of commercial activity only; it is an important strategic industry for the future, which must be treated differently from an ordinary commercial industry if we are to rely on it. I am not satisfied with the Minister's answer and I want to press the amendment to a Division.

Jonathan Sayeed: I would be grateful if the hon. Gentleman assisted the Committee. Does he wish to press amendments Nos. 37 and 38 to a vote, or only one of them?

Michael Weir: I would like to press each of them, because they are different.

Jonathan Sayeed: For the information of the hon. Gentleman, the Division on amendment No. 38 will happen once we reach clause 181, after Government amendment No. 198.
 Question put, That the amendment be made:—
The Committee divided: Ayes 1, Noes 15.

Question accordingly negatived. 
 Question proposed, That the clause stand part of the Bill.

Anne McIntosh: I seek clarification from the Minister of the true electricity distribution costs by region. There is some useful relevant material in the Government's regulatory impact assessment. Page 130 shows, surprisingly, that the average cost of distribution in the north of Scotland is not much greater than that in the south of Scotland, which in turn is not much greater than that in, say, Yorkshire.
 Against that background, and bearing in mind the renewables obligation that the Government have imposed on utility companies and electricity companies in particular, and given that the figure for network length in the north of Scotland is a staggering 66.4 km per 1,000 customers—more than double the figure for the south of Scotland and probably almost three times that for Yorkshire—does the Minister share my surprise that the cost of distribution for the north of Scotland is not greater than what is shown in the table on page 130?

Nigel Griffiths: No. I do not share the hon. Lady's surprise, for several reasons. There is a long history to this. The previous provisions covering what we call hydro benefit go back to 1940, so there is a long history of close Government involvement in ensuring the cost-effective production of electricity in the rural north of Scotland, and, indeed, the part of the country that I was brought up in, the rural south of Scotland. That is one relevant factor. Obviously, the co-operation between the Government and the private sector introduces other factors that influence the cost to which the hon. Lady referred, so it is perhaps not as strange to me as it may be to others.
 I very much welcome the cost-effective production of electricity in Scotland, but we do know that the greater distances and problems of access—as well as the problems of climate that mean that power lines, for example, are subject to much more severe weather and storms than anywhere else in the UK—bring costs with them. I would be the first to applaud the work done by the distributors and transmitters in ensuring that disruption continues to be minimised and that electricity is available at a cost-effective price. 
 Question put and agreed to. 
 Clause 180 ordered to stand part of the Bill.

Clause 181 - Adjustment of transmission charges

Amendment proposed: No. 198, in 
clause 181, page 138, line 38, leave out from 'must' to end of line 46 and insert— 
 '(a) publish a draft of any scheme proposed to be established by the order; 
 (b) publish an assessment of the costs likely to be incurred by different persons in consequence of the order; and 
 (c) consult authorised suppliers and such other persons likely to be affected by the order as he considers appropriate. 
 ( ) An assessment published under subsection (7)(b) must set out, in particular, the Secretary of State's assessment of the likely effect of the order on charges for electricity in Great Britain. 
 ( ) Subsection (7) may be satisfied by publications and consultation taking place wholly or partly before the commencement of this section.'.—[Nigel Griffiths.]

Jonathan Sayeed: With this it will be convenient to discuss Government amendment No. 199.

Anne McIntosh: Would a proposal to adjourn be appropriate? I will speak for more than two minutes, but I do not know what the procedure is.

Jonathan Sayeed: The hon. Lady can start.

Anne McIntosh: I would prefer to have the benefit of hearing the Minister speak to the amendment before I respond.

Nigel Griffiths: The amendments relate to the adjustment of transmission charges for renewable generators and were tabled in response to Opposition amendments made in the other place. Amendment No. 199 is straightforward, as it simply brings the current drafting of the clause in line with parliamentary convention. The Government's original intention was
 to commence the power under the clause using the negative procedure, which was believed to be adequate and appropriate for such a power. That was overturned by an Opposition amendment in the other place, which replaced ''negative'' with ''affirmative''. It is parliamentary convention that an order is subject to the negative procedure, but that the power to make an order is subject to the affirmative procedure.
 Amendment No. 198 also seeks to tidy up the revised drafting in light of an Opposition amendment. Subsection (7) requires the Government to publish a draft of the scheme allowable under the clause, together with an impact assessment, and to consult on the scheme. The Opposition also inserted subsection (8), which requires the Secretary of State to publish an annual report on the ongoing costs of any scheme that is established. The amendment makes the legal effect clearer and clarifies the fact that the consultation on the power could take place before the section is 
 commenced. It also removes the requirement for the Secretary of State to publish an annual report on the ongoing costs of any scheme made under the power, which is believed to be unnecessarily bureaucratic. 
 The cost of any scheme to consumers should not change substantially from year to year, and will be made public via an impact assessment if a scheme is made. Any scheme will have a total duration of only five years, after which another order would need to be made to extend it or to create another scheme for a maximum of another five years. At that point, the costs and benefits of any extension or replacement scheme would be published. We publish many annual reports, and an annual report in this area would only increase bureaucracy while serving no purpose. The cost would also have to be met from the public purse. It is not necessary or justifiable. 
It being twenty-five minutes past Eleven o'clock, The Chairman adjourned the Committee without Question put, pursuant to the Standing Order. 
 Adjourned till this day at half-past Two o'clock.